Even as Microsoft readies a host of new ad-supported online services to battle rivals, the software maker has been mulling a plan to offer free, ad-supported versions of some of its desktop products, CNET News.com has learned.

Although no specific plans have been made, executives within Microsoft are examining whether it makes sense to release ad-supported versions of products such as Works, Money, or even the Windows operating system itself, according to internal documents seen by CNET News.com.

"As Web advertising grows and consumer revenues shrink, we need to consider creating ad-supported versions of our software," two Microsoft researchers and an MSN employee wrote in a paper presented to company executives earlier this year. The document was prepared for one of Microsoft's twice-yearly Thinkweek exercises, in which Chairman Bill Gates and other top executives gather to consider potential new avenues for the company to follow.

Microsoft officials confirmed the authenticity of the paper, dated Winter 2005, but declined to comment on its contents. However, a Microsoft source characterized the paper as an internal brainstorming exercise.

"It is simply an exploration of different models of delivering software to customers," the source said. "It is not policy, it is not a plan, and no decisions have been made--it's just some thoughts from our research and business units."

In recent weeks, Microsoft has identified a number of ways to increase its online advertising business as it seeks to fend off rivals such as Google. A move to bring ads into its desktop software, though risky, would offer the company an ability to move the battle on to its home turf.

The document also sheds light on Microsoft's concerns over the erosion of revenue from shrink-wrapped software, particularly in the consumer market.

Chief Technical Officer Ray Ozzie and Chairman Bill Gates outlined some of the opportunities and the challenges Microsoft faces in a series of October memos. In the more blunt of the two missives, Ozzie said Microsoft had an obligation to act on the shift to ad-supported software.

"It's clear that if we fail to do so, our business as we know it is at risk," Ozzie wrote. "We must respond quickly and decisively."

Already, the company has announced plans for Office Live and Windows Live, two products that are ad-supported complements to its existing desktop software. But in the internal documents, Microsoft workers maintain that the software maker may be forced to go further if rivals launch ad-supported versions of popular programs such as PowerPoint.

"If our competitors release free, advertising-supported versions of these programs, we may need to do the same," the two researchers and John Skovron, who works in MSN's Money unit, wrote in the winter 2005 paper.

Microsoft has been mulling a shift to ad-supported software for some time. A paper prepared for a summer 2004 Thinkweek gathering noted the decline in consumer software and suggested Microsoft's MSN online business might benefit from moving from a subscription model to one paid for through advertising.

The more recent paper outlines a number of factors for identifying which desktop software could be ripe for moving to an ad-based model. Such factors include whether the software is frequently used online, whether it contains good data for targeting ads and whether it is likely to face ad-supported competition. Among the products it identifies as meeting some of those criteria are Works, Money and OneNote.

But others both inside and outside Microsoft have called on the company to go beyond the types of services offered by MSN. An online version of Office is one of the products most often talked about. The company has in the past mulled such a move. But a commercial product never materialized, due to internal political battles and fears of cannibalizing revenue from Office, which is among the company's most profitable products.

Plan extends to Windows
The company's exploration of ad-supported software extends even to Windows, its most important product. An ad-supported version of the operating system could make some sense, the Microsoft researchers argue in their Thinkweek piece, noting that the product reportedly earns $9 per year per user.

"It seems possible that we could match that revenue via ads, but there are difficult UI (user interface) issues to solve, since the OS does not have a natural way to display ads that does not annoy users," the Microsoft workers said in the paper. One suggestion is a low-end version of the operating system that comes bundled with other ad-supported programs, such as Works, Outlook Express and Windows Media Player. However, the writers point out that "it's not clear how to prevent these elements from being replaced."

... to release "some" of the source-codes which it apparently has for Widnows' "Half-Brother" - IBM's OS/2 and let the world see how an unrestrained OS/2 would perform in the marketplace. This may in fact bring Microsoft some of the services revenues it will be seeking in the very near future!

...apps free. in their drive to web based computing, i'd bet money they know that they must also make for-pay ISP provision a service that comes without advertising and brings with it the full security suite they've been trialling. how to package these concerns may well be what's taking so long on the still-distant release dates for IE7 and the Vista o/s. i found it surprising from the article that they're making as much as $7 per computer on the current o/s.

Isn't Windows buggy enough without the thought of making an "Ad Supported" version of it? Also there would be a killer breed of adware that can't be removed without deleting Windows.

Also, It's only a matter of time until someone finds a way to overwrite MS ads with their own, no matter what MS does, there will be someone who finds out how to exploit the built in ads. Even worse, other adware will try and maybe remove the MS Adware, thus rendering Windows inoperable.

This is a great idea, without the ads! Ad-Supported Windows - BS.

What MS Should do is offer a "lifetime" purchase, which basically entitles you to a new version of Windows for life. They should also have "Family Packs" for multiple PCs. I have XP Pro on Three PCs and Home on one. That is ******* EXPENSIVE! I can't wait until a copy of XP can be bought for $50 for a full version.

Apple sells 'family packs' of its more popular software (OS X included). I have an OS X family pack that cost only a few dollars more than the single user license, and I get to install it on FIVE macs. Why would a household be forced to buy the same piece of software for every computer it owns?

Yeah, Windows is expensive, but I've found that most software I need to run has a linux port, or replacement. I dual boot Ubuntu/XP MCE, and I spend most time in Linux. Anything that doesn't run, there's WINE for, or Windows, as a last resort.

This has to be about the worst strategy I have ever heard. The OS that excels in giving shelter to malware, spyware, viri, and all sort of fun little goblins, would make itself even more prone to attack by introducing desktop adware.

Would the public be stupid enough to use this? I suppose some would. But I have my doubts that this would be widely adopted, and would likely begin the first steps towards a crumbling Windows empire.

Should this scenario play out as your are predicting have you taken into consideration what happens to the world's mountains of data that will be locked up it Microsoft's proprietary software format since as it is widely believed that over 90% of the desktop space is under control by this company's products. What needs to be urgently addressed is a move by Microsoft towards the adoption of of the proposed Open Document Format (XML...) and the voluntary release of certain source-codes so as to safe guard against lock-ins in case of catastrophic failures such as the one you have described above. I am quite certain that after "Enron" and other similar scenarios there are certain controls in place.

&for the empire to crumble and you will only turn blue. With over 40 billion in bank it has enough money to continue at its present pace without a penny coming in. With around 20% increase in revenue last quarter that it still has plenty of penniesss flowing in. So hold your though and sorry to break this news to you ;)

Not really. I do think that they should charge for media player and the other app.s that are bundled, the IE/Browser for another.

WHen people have to PAY for a product and not get it as the defaultthen they compare products on the MERITS. This unfair bundlling/integrating of monopoly software (Windows, Intenet explorer, Office) stifles innovation, but also makes writing software easier. This dicotomy has been the problem. But now Open Source, Free software is changing, restoring things for the better IMHO.

OpenOffice.org 2.0 is an excellent office suite... Those who use PGP, should look at GNU Privacy Guard. Google is involved with some cool things that are free (Picasa, Gmail, Google Earth)... okay - those are not open, but they are good and you can't beat the price. I also like what someone said about making OS/2 open... doubt it would happen, but I think it is a great idea. It was a decent OS that got lost in the Microsoft Shuffle. The thing that has been missing for Microsoft for a long time is competition... they swallowed it up and lived the high life for a while and now it's coming back... and they can't buy it, because it is already free. At least they got their new XBOX coming out before their new competition (HA!).

The only software that you currently have to pay for you need from Microsoft is Windows and Office (and that's only because it's made a standard by most schools and businesses). Works and Money are 100% worthless!

I agree totally with you. MS works is worthless and should be discontinued from MS suite of products. It causes formatting issues between word and works and is plain confusing. Also MS Money is useless cause Intuit (Quicken) has more of a market when it comes to financial software (including quickbooks).

I notice that a lot of people have been commenting about OS/2 lately. I went over to IBM and noticed at the end of 2006 they will officially wash their hands of OS/2. I think IBM really did screw up with OS/2. They could have had the best OS around, but like most things IBM does they never put anything behind it.

They aren't the only ones who had something promising to only watch it fade into history. BeOS had lots of promise, but the guy who owned it sold it to Palm and then it just went away. There is a community out their working on a Clone/whatever of BeOS, but Palm owns the code and I don't think they open sourced it.

There has been a lot of software that was really good, but for whatever reason they faded away or became outdated. Maybe IBM could open source some of the OS/2 code, but probably not going to happen.

My suggestion to Microsoft is to continue to sell Window OS as shrink wrap product. Put all Application Programs on the web and price them at diffrent level of users experience: from free (more ads interruption) to some fee (less ad) and higher fee (no ad). This business model will protect the current revenue stream while expanding the new market and revenue.

Microsoft could adopt would be to outsource parts of its software development to countries such as Brazil and India (making it easier for acquisition and adoption in these countries also) to help bring down the Total Cost of Ownership (TCO) to users of its products... this will in turn allow for the people in these underdeveloped countries to afford more American made goods and services that they presently find difficult to obtain and afford. Well, with regards to the questions of ads... don't we all find our eyes glued to the television screen during the half-time -- come Super Bowl! therefore a few occational ads on the computer screen ought not to be a bad idea!

Ok, Ad were and always was the best money making strategy; it's the most direct but without Open Sourcing Windows, MS doesn't want to play with the other children in the sandbox so they don't get the benefits of other Ad revenue. When you have such a thin business model (AD strict) set up it is imperative that you get cooperation from other companies and organizations like Linux, Gnome and Konqueror. For instance, a closed solution not under Shared Source would be very difficult to interpolate with other software so Ad revenue would be very limited to MS' 'ecosystem.'

I suggest MS focus on what I call sub- applications to their prime OS geared toward their live site so people are inclined, but not forced, to use their search engine plus tools like even a desktop tool, like Gnome, Ad-Supported that can be even used on Linux, BSD, Solaris ETC. This would also prove useful in privacy situations because people would trust MS more by being able to see the code plus writes would be more inclined to write code that was very safe and geared towards people's privacy.

They must break it up to become stronger. This is where the action is.

I do not feel that I would like to see Microsoft start including commercials in their software products. Even though I, along with other users, would like to receive free software, I feel the correct place for commercial ads is on the Internet solely. Users should not be subject to view ads while trying to be productive. I believe that most users would be forced to look at other options should ads be introduced into offline applications.

Microsoft started as an O/S software and desktop application company. Google is an internet company where ad campaign makes sense. It seems adding ads in desktop application is going overboard. They should invest more on web development and create cool and different products people can get excited about and serve ads from there. These days Google, Yahoo, and Microsoft are copying one another, and one company who can come up with a really unique product should lead the race. Merely copying other's ajax portal sites is not sufficient. (look at start.com or live.com and netvibes.com) Apple doesn't put ads on their software, but sold tons of ipods. Microsoft needs to work on product development than debating about adding ads in their existing desktop products.

Making an ad supported OS is the worst idea I have ever heard. The solution to selling more shrink wrapped software is simple...lower your prices. Microsoft has been gouging the public with crappy software for way too long. If the govt had split them up for being an illegal monopoly, the separate divisions would have been more competitive, innovative and cost effective for consumers.

In preparation; perhaps, for its reincarnation in view of the anticipated turbulence on the Redmond Campus to resume battle side by side this time with Linux (with IBM avenging its death) against its half-brother (Windows) for its share of the desktop space: <a class="jive-link-external" href="http://blogs.zdnet.com/BTL/?p=1313" target="_newWindow">http://blogs.zdnet.com/BTL/?p=1313</a>

If simply contributing to an Open Source project is not enough, you now have an added incentive. OS2 World.Com has organized an ongoing Bounty Hunt together with OS2 User Group Sweden where you either can claim or sponsor bounties for a particular development project.

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Although a successful ad bid would kill our revenue stream, (we're an ads based content company), I think this is a potential great idea for m$.

Hnoestly though I'm starting to think m$ should say screw windows, and develop a kickass version of Linux. The world has joined forces to become linux oriented, if they adopt the os-os (hah) platform, I think they could steam roll the competition.

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